UnitedHealth is not attractive at this price (NYSE:UNH)

jetcityimage/iStock Editorial via Getty Images


As a dividend growth investor, I’m always looking for an increase in my current positions or looking for new positions that can fit my strategy. Currently, in my portfolio, I lack exposure to healthcare, and although I hold several positions in pharmaceuticals and medical devices, I don’t have much exposure to health insurers outside of CVS (SVC).

I looked at UnitedHealth (NYSE: UNH) in 2021. I found the company to be a decent addition to a dividend growth portfolio and rated it as a hold. Since then, the company has outperformed the broader market due to higher volatility. Following a 30% increase in the share price, I decided to take another look at the company.

I will analyze the company using my dividend growth stock analysis methodology. I use the same methodology to facilitate the comparison of the stocks analyzed. I will examine the fundamentals, valuation, growth opportunities and risks of the business. I will then try to determine if it is a good investment.

According to Seeking Alpha’s business overview, UnitedHealth Group operates as a diversified healthcare company in the United States. It operates through four segments: UnitedHealthcare, Optum Health, OptumInsight, and OptumRx. The UnitedHealthcare segment offers consumer-focused healthcare benefit plans and services. the The Optum Health segment provides access to healthcare provider specialist networks, health management services, care delivery, consumer engagement and financial services. the The Optum Insight segment offers software and information products. the The Optum Rx segment provides pharmaceutical care services and programs.

Logo UnitedHealth Group.svg



Sales over the past decade have almost tripled. What is even more impressive is the steady increase in sales. Health insurance is a basic necessity for most people. thus, the company steadily increases its income. Growth is both organic and through mergers and acquisitions and this trend is expected continue for the foreseeable future. Going forward, analyst consensus, as seen on Seeking Alpha, expects UnitedHealth to continue to grow sales at an annual rate of approximately 9.5% over the medium term.

Data by YCharts

EPS (earnings per share) has nearly quadrupled over the past decade. The business has struggled with the pandemic as it has not been able to be as profitable as in the past. During the pandemic, its medical loss ratio peaked, and today it stands at 84% whereas before the pandemic it hovered around 70%. Going forward, analyst consensus, as seen on Seeking Alpha, expects UnitedHealth to continue to grow at an annual rate of approximately 14% over the medium term. Analysts expect the medical claims ratio to decline in order to achieve better profitability as EPS growth forecasts outpace sales growth forecasts.

Data by YCharts

The company has paid an increasing dividend since the financial crisis of 2008-9. Before these twelve years, the company paid dividends without reducing them for more than twenty years. The dividend yield is not high at 1.1%, but it is extremely safe with a payout rate of 30%. The company is expected to increase the dividend again in June, and investors should expect a 10-12% increase that will be in line with EPS growth.

Data by YCharts

The number of shares outstanding has declined over the past decade. Over the past 10 years, UnitedHealth has purchased more than 9% of its stock. In the past, the company bought shares more aggressively, but even today, it is gradually withdrawing shares. Redemptions to supplement dividends while EPS is growing are always an advantage.

Data by YCharts


UnitedHealth’s P/E (price to earnings) ratio currently stands at 27, with the company’s price near its all-time high. That’s nearly the highest valuation for the company in the last twelve months. The current P/E ratio looks high as it trades for a higher valuation, even against big tech companies like Alphabet and Meta.

Data by YCharts

The chart from Fastgraphs.com emphasizes the idea that the company is trading for a premium. The blue line represents the average valuation, which equates to a P/E ratio of 18, and since the pandemic we see detachment even though the company is expected to grow more slowly than it has over the past twenty last years. The company will have to justify the current premium by performing very well.

Fastgraphs analysis

Quick graphics

To conclude, even with COVID still around, UnitedHealth manages to keep growing. The company is increasing both sales and EPS, and it’s fueling significant dividend growth with some buybacks. The company trades for a premium even when the expected growth rate is below the average growth of the past decade. Therefore, the company will have to perform well to maintain the premium.


There is a high demand for health insurance in the United States. Health care is extremely expensive and with private insurance being the most important option, there is room to grow as there are still millions of people who are uninsured. Furthermore, the company can also sell additional services to its current customers and try to increase its market share.

Diversification is another important opportunity. The company is not just an insurer. He also owns Optum Health which represents nearly 50% of revenues. Optum is a pharmacy benefit management that helps UnitedHealth customers save money on medications and other services. The company is seeing significant growth in this service as seen in the quote below.

Compared to a year ago, we’re adding over a million more people to Optum Health, supporting 30% more patients in value-based relationships, dispensing more than 20 million additional prescriptions, and serving 1.5 million more people through our health benefit offerings.

(John Rex – Chief Financial Officer, First Quarter Results)

COVID is slowly declining thanks to better treatments and continued vaccine development. Consequently, this will help UnitedHealth improve its medical loss ratio which peaked at 84%. This improvement alone will have a positive effect on the profitability of the company in the short term with the return to normal of medical expenses.


Regulation is a significant risk. While regulation can be both positive and negative, it is the uncertainty surrounding it that can hurt stock performance. Almost every member of Congress has an opinion on health care regulation. The company must prepare for different scenarios with advantages and disadvantages, and political decisions can have a significant impact on the results of insurers.

Competition and inflation are other risks. The health sector is not extremely competitive because it is difficult to penetrate the insurance market. However, in an inflationary environment, even limited competition can be risky. The company will have to deal with rising labor costs and the increased cost of services by suppliers, and it may not be able to pass everything on to its customers.

As a global agenda, this is a time when UnitedHealth Group in all of its parts is going to be first and foremost, doing all it can to protect the people who rely on us from the forces of inflation. .

(Andrew Witty – Chairman and CEO, First Quarter Results)

The margin of safety when investing in a stock is crucial. This is especially important in times of volatility such as the one we are currently experiencing. At the current valuation, the company has no safety margin if it misses expectations. Therefore, although the business is strong in the long term, it may not be a good investment in the short term if forecasts are lowered or execution is disappointing.


UnitedHealth is a great company. The company has very strong fundamentals and a long history of increasing sales, EPS and dividends. In addition, the company has grown and has many growth opportunities with relatively limited risks. However, the valuation and therefore the lack of margin of a security risk, make this investment unattractive at the current price.

It’s a scary situation for defensive companies like UnitedHealth. Business like consumer staples, for example, is a safe haven for investors looking for security. However, when volatility declines, investors may seek risk again and the current valuation may not hold. I think investors should wait 10% for a P/E of 22, or add very slowly and gradually to their position.

Comments are closed.